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China final Caixin manufacturing PMI falls to 2-year low of 47.8 in July

Employees work along a production line of a textile factory in Suzhou, Jiangsu province, China.

[BEIJING] China's factory activity shrank more than initially estimated in July, contracting by the most in two years as new orders fell and dashing hopes that the world's second-largest economy may be steadying, a private survey showed on Monday.

The final Caixin/Markit China Manufacturing Purchasing Managers' Index (PMI) dropped to 47.8 in July, the lowest reading since July 2013, from June's 49.4.

That was worst than a preliminary "flash" reading of 48.2 and marked the fifth straight month of contraction, as indicated by a reading below 50.

New orders reversed into contraction last month after growing in June, while factory output shrank for the third consecutive month to hit a trough of 47.1, a level not seen in more than 3-1/2 years.

The survey showed gloomy business conditions were forcing companies to downsize, causing employment to fall for the 21st straight month. Factories were also forced to cut final prices to a six-month low due to increased competition for new business.

China's official factory activity survey released on Saturday showed growth at big manufacturing companies unexpectedly stalled in July as demand at home and abroad weakened, reinforcing views that the economy needs more stimulus as it faces fresh risks from a stock market slump.

The official Purchasing Managers' Index (PMI) stood at 50.0 in July, compared to the previous month's 50.2. The official survey focuses on larger companies.

The weaker-than-expected private and official readings will stoke expectations of more economic support measures, which have intensified in recent weeks as Beijing struggles to avert a full-blown stock market crash that could do further damage to the already cooling economy.